Macau: Revival Of The VIP Market?

By Shuli Ren

Last week, weekly average daily run-rate in Macau was 917 million Macau pataca, below the 1 billion MOP in the previous week but up 1% from June’s 907 million MOP, reports Wells Fargo analyst Cameron McKnight.

At this run-rate, we should expect “flat to negative low single-digit year-on-year growth for July, said McKnight.

In a research note published on Sunday (before last week’s GGR numbers were available), Morgan Stanley urged more investor patience and believed Macau’s VIP gaming market may well improve in the second half this year.

The reasoning? China’s macro indicators are edging up. China’s GDP grew 7.5% in the second quarter, ahead of the 7.4% consensus estimates. Fiscal and monetary policies there are likely to remain loose in the second half, which is great for the more credit-sensitive VIP gaming segment.

How would an upturn in VIP revenue growth help the Macau market? VIP gaming growth is strongly correlated with P/E multiples. As the VIP segment recovers, we should expect re-rating in the Macau stocks.

Morgan Stanley gave a historical example: After Macau’s VIP revenue fell 8% year-on-year in July 2012, stock prices fell by 10% on average. But as the revenue decline narrowed to 1% in the following August, the stocks rallied by more than 20% over the next three months.

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JULY 21, 2014 11:36 A.M.

spokanimal wrote:

One aspect to Morgan Stanley's view of mass gaming (eg: their Sands China comment) that is missing, is the impact that the faster-growing mass market has on ancillary attractions.

While the growth in gaming has historically out-paced the growth in ancillary attractions such as shopping, shows, and meetings/conventions (MICE), Sands is positioning themselves well for when that trend changes in the years to come.

Looking back to 5 years ago, Sands did that with mass gaming... building resorts that appealed to the mass markets before mass gaming began to outstrip the growth in VIP. Now, Sands is already well positioned in Mass as the other Macau gaming concessionaires rush to exploit mass and rush to build resorts on Cotai, where the mass markets are building the fastest.

Similarly, Sands overbuilt it's ancillaries years ago. Venetian Macau was built, not so much for what it could be LAST decade (it opened in 2007), but for what it will be in THIS decade. As an example of that, Venetian's 15,000 seat arena has been significantly under-utilized over the past 7 years, but each year, as more and more hotel rooms and attractions open on Cotai, the arena absorbs More and More of it's large, "fixed" costs of operation with more and more "events", as the limitations on housing all those event-goers diminish over time. As those events build over time, more and more of them feed mass gamblers out onto the casino floor as they conclude, and no matter WHERE those event-goers are staying on Cotai, they're going to gamble before they return to their hotel rooms... and almost ALL Cotai resorts, both existing and those being developed, are "adjacent" to a Sands resort on Cotai.

This long-term "vision" on Sand's part is often referred to as "critical mass", and while the cyclical surges and wanes in VIP gaming may not always favor Sands, the race in Macau is not a "sprint"... it's a "marathon"...

... and to the long-term visionaries, go the spoils.

Spokanimal

JULY 21, 2014 4:01 P.M.

Echo wrote:

Poor Shuli, still a clueless blogger trying to act like an anal yst & playing the negative game. How low do you think you can get lvs or mpel Shuli, not much more I promise you, and in the meantime you look as foolish as Travis the true fool.

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Barron’s veteran Dimitra DeFotis has been blogging about emerging market investing since traveling to India and Turkey. Based in New York, she previously wrote for Barron’s about U.S. equity investing, including cover stories and roundtables on energy themes. Dimitra was among the first digital journalists at the Chicago Tribune and started her career as a police reporter at the Daily Herald in the Chicago suburbs. Dimitra holds degrees from the University of Illinois and Columbia University, where she was a Knight-Bagehot Fellow in the business and journalism schools.